An economic downturn is a tough one to predict. Recent example was the March 9 index result. The world seemed to be a bleak place to live as shown in the following scenario – everyone is suffering from a prolonged depression; the banks are falling; most of the companies announced their bankruptcy; millions of people are losing jobs and becoming unemployed for years. This period also concurred with a rise of bad news from Chinese companies trading in Singapore or the so-called ‘S-chips’. The cash is out of the banks and the founders are losing control over their own companies because they had pledged their shares to several financial institutions. The profits are overstated and status of the companies becomes a big question and concern. One by one, the S-chips companies are getting suspended.
Under the constant and continued bad news, many of the investors are now cashing out and starting to walk away. Last February, cash sitting on the sidelines were at the highest peak for over ten years. Government reported that the amount of money deposits from both finance companies and non-bank customers with domestic banking units were equivalent to 99 percent of the total market value of the aggregated stocks listed on Singapore Exchange (SGX). An earlier peak was recorder in 2002 in which cash/market cap ratio during the year was 91 percent.
History showed that high level cash holdings signified a strong upside on equity market. The rebound eventually came, almost out of the blue and took everyone by surprise. The recovery, which boosted the “green shoots” in the economy, has lasted within eight weeks and by then, the equity prices gained over 40 percent. Though the economy seemed to have started its recovery, many experts and fund managers still doubt its sustainability.
As most of the property consultants projected that private residential property would fall by 25 to 35 percent, recent forecast suggested a more downside for the rest of 2009, given the fact that prices fell by 14.1 percent during the first quarter of the year. Like analysts of stock market, there was a possibility that the consultants would also miss the turning point of the market. For one, stock market directs the property market by four to eight months and if the stock market remained buoyant, there would be a great possibility that property market would also stabilise and, as said earlier, there would be a lot of cash waiting to flow into the market.